2013 (7) TMI 30 - AT - Income Tax

Tribunal Decisions on Reopening Assessments & Admissibility of Evidence

The tribunal held that the reasons for reopening assessments based on the pen drive were valid. However, the reassessment for AY 2001-02 was quashed due ... Reopening of notice - Non Service of notice u/s 148 & 143(2) - Asstt. Yr. 2001-02 - Held that:- As Department has accepted that the alleged 148 notice was served on Shri Ved Prakash who is neither employee nor an authorized agent of the assessee. The admitted service of notice on said Shri Ved Prakash is neither legal nor tenable in terms of the requirements of the section 282(1). As it is clear that mandatory requirements for proper assumption of jurisdiction u/s 148 by a valid service of notice u/s 148 on the assessee has not been fulfilled by the AO. Consequently as per the mandates of judgment of CIT Versus Rajesh Kumar sharma [2007 (8) TMI 322 - DELHI HIGH COURT] the impugned reassessment is illegal without jurisdiction and liable to be cancelled. Also Non issue of 143(2) notice within the stipulated period would make the consequent assessment invalid as decided in CIT Vs. Hotline International Pvt. [2007 (4) TMI 44 - HIGH COURT NEW DELHI] Reopening on unreliable material and non existence of live link on unreliable material - Held that:- The retrieval of contents and printouts of the pen drive being taken by illegal and unsafe process, without prescribed cyber forensic procedure make the evidence illegal, unreliable and having no evidentiary value. The reasons recorded for reopening on this basis of such pen drive and print out are not proper, therefore the reasons be quashed. The seizure memo of the pen drive by V.B. shows that the date of execution as 20.5.2007 whereas the statements of the two witnesses namely Shri Rakesh Kumar and Shri Gurcharan Singh ,DSP narrating the alleged story of seizure is dated 19.5.2007.i.e. one day in advance of the alleged search and seizure of pen drive. Thus the police search & recovery of pen drive itself suffers from fundamental defects which make the pen drive as not reliable evidence against assessee. The procedure followed as per the own version of the VB in the present case is a total infringement of relevant laws, negation of accepted norms and code of practices as laid down in the Evidence Act and the I.T. Act, 2000.The so called printouts are therefore unreliable and do not constitute admissible evidence in the eyes of law .The assessment made by the AO on the foundation of such non est material is devoid of any merit on legal and factual perspective and deserves to be quashed As it is evident that there is negative inflow and no fresh introduction of any undisclosed credit balance during the year in the print outs; rather the opening debit balances have been used for the role over. In the absence of any fresh introduction of cash or credit, no addition as undisclosed income is exigible to income tax in A.Y. 2001-02 in the given facts and circumstances of the case for any alleged introduction of undisclosed income. AY 2002-03 - Held that:- Coming to the undisclosed income relatable to AY 2002-03, the debit opening balance for which no credit has been given amounting of ₹ 5,07,53,587/- is to be reduced from the peak credit balance. Accordingly no addition on the basis of the peak credit. AY 2003-04 - CIT(A) has sustained the addition of ₹ 89,500 towards extra consumption of fuel injector and has deleted unexplained deposits on the ground that the same was covered by the addition on account of extra consumption - Held that:- Perusal of the order of the Tribunal shows that the view of the CIT(A) that sale out of the books has been ploughed back in the form of deposits and the separate addition was the same could be deleted, has not been challenged by the revenue before the Tribunal. The effect of the finding of the CIT(A) is that it has been accepted that the sale out of the books of account has been deposited in the form of cash credit, the addition in respect thereof at ₹ 89,500 has been sustained, therefore, CIT(A) and the Tribunal has not deleted the addition made by the AO as an unexplained cash credit under section 68 as it was explained, but it has been deleted on the ground that the deposits were out of sale made out of the books of account and the addition to that extent has been sustained. No error in the view of the Tribunal. Addition on account of payment of US $ 20,000 in South Korea - AY 2007-08 - Held that:- AO without giving the Appellant any opportunity to cross-examine the alleged Mr. Young who has made the alleged statement made the addition. Such a conclusion having a direct impact on the liability of Appellant and conflicting with his consistent stand has been drawn without proper and reasonable opportunity to examine the said evidence(s) and to cross -examine the witnesses making such accusations. Thus the order suffers from violation of the principles of natural justice, not availability of relevant facts and non speaking order. The Learned Assessing Officer has merely and mechanically relied on the report/documents received from an external agency without conducting any independent enquiries, verifications and allowing the examination of material and cross examination and relevant evidence. Issues Involved:1. Validity of Section 148 proceedings.2. Service of notice under Section 148 for AY 2001-02.3. Service of notice under Section 143(2) for AY 2001-02.4. Evidentiary value of the pen drive and its printouts.5. Merits of additions based on the pen drive for AYs 2001-02, 2002-03, and 2003-04.6. Addition of Rs. 9,21,200/- for AY 2002-03.7. Revenue's appeal regarding the deletion of Rs. 25,35,220/- for AY 2002-03.Detailed Analysis:1. Validity of Section 148 Proceedings:The tribunal held that the reasons recorded for reopening the assessments were based on the contents of the pen drive, which had a live link with the material available on record. The pen drive and its printouts were considered admissible evidence in income tax proceedings, forming a basis for investigations and additions. Consequently, the reasons for reopening the assessments were properly recorded by the Assessing Officer (AO).2. Service of Notice Under Section 148 for AY 2001-02:The tribunal concluded that for proper assumption of jurisdiction by the AO, a valid service of notice under Section 148 is mandatory. It was found that the notice was sent to an incorrect address and served on an individual (Shri Ved Prakash) who was neither an employee nor an authorized agent of the assessee. This failure to properly serve the notice rendered the reassessment proceedings for AY 2001-02 invalid and quashed them.3. Service of Notice Under Section 143(2) for AY 2001-02:Given that the reassessment proceedings for AY 2001-02 were quashed due to improper service of notice under Section 148, the tribunal did not find it necessary to address the issue of non-service of notice under Section 143(2).4. Evidentiary Value of the Pen Drive and Its Printouts:The tribunal determined that the pen drive and its printouts were admissible evidence in income tax proceedings. The contents of the pen drive were related to the assessee's business concerns and bank accounts, making it a valid basis for reopening the assessments and forming a reasonable belief that income had escaped assessment.5. Merits of Additions Based on the Pen Drive for AYs 2001-02, 2002-03, and 2003-04:- AY 2001-02: The reassessment proceedings were quashed due to improper service of notice under Section 148.- AY 2002-03: The tribunal held that the peak credit of Rs. 36,89,310/- was to be considered as the undisclosed income for this year. The tribunal also addressed the issue of opening balances and the methodology for calculating peak credits.- AY 2003-04: The peak credit for this year was determined to be Rs. 46,16,387/-. After telescoping the peak credit from AY 2002-03, the taxable income for AY 2003-04 was determined to be Rs. 9,27,077/-.6. Addition of Rs. 9,21,200/- for AY 2002-03:The tribunal found that the addition was based on a statement made by a third party (Mr. Park Young Tae) before the Enforcement Directorate, without giving the assessee an opportunity to cross-examine the witness. This violated the principles of natural justice. The tribunal set aside the addition and restored the issue to the file of the AO for a fresh decision in accordance with the law.7. Revenue's Appeal Regarding the Deletion of Rs. 25,35,220/- for AY 2002-03:The tribunal upheld the CIT(A)'s decision to delete the addition, as the sale consideration of the property was received through a registered sale deed and there was no evidence of any on-money transaction. The tribunal found no infirmity in the CIT(A)'s order.Conclusion:- The reassessment for AY 2001-02 was quashed.- For AY 2002-03, the undisclosed income was determined to be Rs. 36,89,310/-.- For AY 2003-04, the taxable income was determined to be Rs. 9,27,077/- after considering the peak credits.- The addition of Rs. 9,21,200/- for AY 2002-03 was set aside and remanded for fresh consideration.- The revenue's appeal regarding the deletion of Rs. 25,35,220/- for AY 2002-03 was dismissed.Order:- Assessee's appeal for AY 2001-02 was allowed.- Assessee's appeals for AY 2002-03 and 2003-04 were partly allowed.- Revenue's appeal for AY 2002-03 was dismissed.